Electronics buyers search the world for parts

Global sourcing isn't just for large multinational conglomerates anymore. Even buyers at small companies are sourcing globally, often using the Internet as a tool to find scarce parts.

By -- Purchasing, 2/22/2001

Global sourcing is nothing new for electronics buyers at large OEMs and contract manufacturers. After all, most semiconductor suppliers are based in Asia, Japan and Europe. Buyers at companies like IBM, Lucent Technologies and Solectron routinely source from global suppliers.

However, a new PURCHASING Magazine survey finds that even electronics buyers at small OEMs and contract manufacturers are getting into the global sourcing act. Purchasers at small contract manufacturers, industrial, control machine tool, and consumer appliance industries are expanding their sourcing universe, often using the Internet to find parts and suppliers around the world.

The survey of electronics buyers in those industries as well as computer, telecommunications, automotive and medical equipment, test and measurement and military and aerospace industries finds that overall 73% of buyers say they have increased their spend with global suppliers over the past two years. Seventy-eight percent of buyers at companies with sales of less than $100 million say they are buying more from global suppliers.

In the next two years, 62% of all buyers say they will increase their buys with offshore suppliers and about 65% of buyers at the smaller companies say they will boost spending with global suppliers. In many cases purchasers are buying directly from the component manufacturers. In other instances, purchasers are buying from distributors in Europe and Asia or U.S. distributors with facilities on those continents.

Buyers cite several reasons for doing more offshore buying: increased business, availability and lower prices. Although supply conditions are loosening for many parts, last year was tough for many buyers looking for tantalum and ceramic capacitors, chip resistors and analog ICs. Many could not find enough parts from their existing supplier base and decided they had to look for additional suppliers.

"For us global sourcing is an issue of availability," says Sally Morrow, purchasing manager at We Imagine Inc., a small contract manufacturer in Chatsworth, Calif. "I used to buy boards and the issue was cost. But with the commodities I'm buying now it's availability, finding the parts, and getting them here. She buys capacitors, resistors and DRAM . "Being time constrained is my number-one reason for sourcing globally," she says.

Morrow says about 6% of her production spend is with offshore suppliers and she expects that figure will grow to about 10% in the next two years.

Brian Murphy, materials manager at Vermont Machine Tool, Springfield, Vt., says increased demand from customers for his company's equipment has driven his offshore purchasing efforts over the past year. His offshore purchases include power supplies, connectors, microprocessors and DRAM .

Murphy says he and his senior buyers use the Internet to search for global suppliers. "Probably three or four times a week I'm searching for competitive products that meet our standards. "We are using the Web more and more for global sourcing. We are finishing up the implementation of a new integrated business software package that will enhance that capability," says Murphy.

Murphy adds that often he can find a better price for a part by looking globally, but there is a downside: Often leadtimes are longer for the parts.

In fact, longer leadtimes are cited by 68% of survey respondents as one of the challenges of global sourcing. Other challenges include currency fluctuations named by 50% of purchasers and time-zone differences cited by 44% of respondents. Language barriers are also a challenge, according to 21% of buyers surveyed.

Distributors go global

While large OEMs buy directly from component manufacturers, buyers at small OEMs and contract manufacturers often purchase parts from distributors. The good news for buyers is that as they source globally, they will have the opportunity to buy from the same distributors they use domestically because many large distributors continue to expand their global presence. Most distributors are doing so to service OEMs and contract manufacturers in Europe and Asia. However, some buyers are finding a distributor's global presence to be useful even if they are buying for U.S.-based facilities.

Example: Aspect Communications, a telecommunications equipment company, recently had a shortage of some communication interface ICs used in its telephones switches for call centers

"Most of our boards are made by a contract manufacturer and the CM buys the components for the boards" says Jim Brokaw, a senior buyer at Aspect. "Someone at the CM did not order enough of the interface ICs and we had a crisis situation. It was critical end of quarter and we needed the parts for the boards to get the product out the door to customers," says Brokaw.

Brokaw says his domestic sources did not have the part. He went on the Internet and found an OEM in Germany that used the same component. He called the company, bought the excess inventory of the part, and was told that an Avnet branch in Europe had more of the parts, although the U.S. branches of Avnet did not. He called the European branch and purchased the parts.

"It saved us a million dollars in business," says Brokaw.

While Brokaw sources globally on a spot basis, many OEMs and CMs are purchasing regularly for their facilities in the U.S., Europe and Asia. Evidence: the survey finds that 15% of North American buyers who source globally are buying parts for both U.S.- and non-U.S.-based facilities. That's one reason that electronics distributors are expanding their global business. Larger distributors have purchased European- and Asian-based distributors as part of their globalization efforts.

Roy Vallee, CEO of distributor Avnet Inc., says Avnet is expanding globally because many traditional distribution customers are becoming global.

"Globalization is vital to survival. If you intend to be a leader in any field, it's not good enough to be the best in class in your company or even your region," says Vallee. "You have to be best in class in the world or another company will get you. As a result, many customers I would consider to be distribution bread-and-butter customers are becoming global."

He notes that the vast majority of electronics suppliers are already global and now a growing number of distribution customers are becoming global. "In order for us to be the global material manager in the electronics industry supply chain and serve customers and global suppliers, we also needed to be a global company," he says.

Because of that trend Avnet has already expanded to 63 countries and plans to be in every country where electronics manufacturing takes place, including Japan.

VA is global, too

Buyers sourcing globally can expect distributors to offer the same value-added services and supply chain services that they offer domestically

"When the globalization trend started a couple of years ago, buyers basically said 'can you get me my parts for my plant in Europe,'" recalls Tom Pitera, president of Pioneer Standard's Industrial Electronics division. Today they want global supply chain management and value-added services. "Buyers say 'don't tell me you can do it in California and not in Europe.' Our customers are becoming more sophisticated. They want the services regardless of where they are," he says.

That is especially true with contract manufacturers, many of whom build products for customers around the world. CMs often buy parts through distribution and use distributor's inventory-management programs. Case in point: Sanmina. Sanmina has facilities in eight countries and uses about 10 distributors, according to Latchman Venkatesh, vice president of global supply.

"A large portion of Sanmina's annual spend is with distribution," he says. "We look to our distributors for supply-chain assurance and transactional cost management."

He says distributors provide JIT, auto-replenishment, in-plant stores, consignment and bonded IC programming, kitting and design assistance often on a global basis.

"The uniqueness of these programs is that they keep a specific amount of material that is exclusively for Sanmina's use," he says. "When we send an electronic release, it's shipped the next day and received at our facilities during the next three days. The program allows Sanmina to keep fewer parts on site, but get the parts when we want them, thus realizing better inventory turns," according to Venkatesh.

However, Venkatesh says that a distributor's expertise in supply chain and inventory-management programs can vary depending on geographic location. "One may be good in the U.S., but not as good in Asia, so he uses different distributors in different locations based on their strengths.

With component manufacturers cutting back on the number of customers they service directly, buyers, especially at smaller OEMs and contract manufacturers, will be dealing with distributors more, especially if they are sourcing globally.